Gold recovers from a key support

Weak US job data pushes up the yellow metal

Gold extended its fall, as expected, last week to test $1,280 per ounce levels. However, the prices reversed sharply high on Friday, recovering all the loss.

The weak US jobs data on Friday helped the yellow metal surge above $1,290 and test the psychological level of $1,300. Gold made a high of $1,300.8 before closing the week at $1,298.3 per ounce, up 0.4 per cent for the week.

Silver, on the other hand, reversed higher after testing the $15-14.95 per ounce support zone. The global spot silver prices made a low of $14.97 per ounce on Thursday and bounced sharply from there to close at $15.34 per ounce, up 0.9 per cent for the week.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) was beaten down badly as the rupee strength played a spoil sport. The rupee’s strengthening over a per cent against the dollar last week dragged MCX-Gold to an intra-week low of ₹31,777 per 10 gm. However, the surge in the global gold price helped the MCX contract to bounce from the low and close at ₹32,167 per 10 gm, down 1.45 per cent for the week. The MCX-Silver contract managed to recover all the loss after making an intra-week low of ₹37,701 per kg. The contract closed the week at ₹38,728 per kg and was up 1.1 per cent for the week.

Dollar gains

The US dollar index traded strong all through the week. The European Central Bank (ECB) slashing the growth forecast last week triggered a sharp rally in the dollar index. But the weak non-farm payroll data release on Friday halted the rally. This pulled the dollar index slightly low from the high of 97.71, to close the week at 97.31.

The dollar index has a key resistance at 97.7. A strong break above this hurdle is needed for the index to gain fresh momentum. Such a break can take the index initially higher to 98.3.

A further break above 98.3 will then increase the likelihood of the index targeting 99 or even 100 thereafter. In such a scenario, the upside in gold could be capped. But if the dollar index fails to breach 97.7, a fall to 96.7 and 97.5 is possible in the near term.

Gold outlook

The sharp rally on Friday has given a breather for gold. The price action last week indicates that the global spot gold ($1,298) lacks fresh sellers to drag it decisively below $1,280. The near-term support is at $1,290 which is likely to be tested if gold continues to trade below $1,300. A range-bound move between $1,290 and $1,300 can be seen for some time. A strong break above $1,300 can take gold higher to $1,310 and $1,315. The region between $1,310 and $1,315 is a crucial resistance. Only a decisive break above $1,315 will ease the downside pressure and turn the outlook positive.

A cluster of supports are poised in between $1,280 and $1,270, which is likely to limit the downside in gold. Only a strong break below $1,270 will bring renewed pressure on the yellow metal.

On the domestic front, the MCX-Gold (₹32,167 per 10 gm) bounced back last week after testing the key trend support level of $31,830. This leaves the possibility high of the contract witnessing a corrective rally to ₹32,500-32,600. A further break above ₹32,600 will then pave way for the next target of ₹33,000.

Silver outlook

Silver ($15.33 per ounce) bounced sharply last week from around the psychological level of $15. A near-term support is at $15.15 — the 200-day moving average which is likely to cap the downside in the near term. As long as silver trades above this support, an up-move to $15.55 is possible. The inability to breach $15.55 can trigger a pull-back move to $15.3 or even lower. But a strong break above $15.55 will increase the likelihood of silver extending its rally to $15.75 and $16.

The MCX-Silver (₹38,728 per kg) has a key resistance at ₹39,000. The contract has to breach this hurdle to gain fresh momentum. A strong break above ₹39,000 will take the contract higher to ₹39,500 or even ₹40,000. But as long as the contract trades below ₹39,000, a range-bound move between ₹37,800 and ₹39,000 is possible. A break below ₹37,800 will bring renewed pressure on the contract and will drag it to ₹37,500 and ₹37,150 thereafter.

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